Reported core PATMI at RM80.7m for 1QFY21, in line with HLIB’s forecast (24.7%) and consensus (25.7%). Performance for the quarter was mainly driven by automotive segment. Management has revealed its aspiration of Revenue RM20bn, PBT RM2bn and PATMI of RM1bn under its new CREST@2021 framework. Adjusted earnings for FY21-22 by -3.7% and +4.5% respectively and introduce FY23 earnings at RM408m. Maintain BUY with higher TP: RM3.58 (from RM3.45) based on 10% discount to SOP: RM3.96.

Within expectations. UMW reported core PATMI of RM80.7m (adjusted for quarterly provision of RM17.5m Perps distribution) for 1QFY21, which was in line with HLIB’s FY21 forecast (24.7%) and consensus (25.7%). Performance for the quarter was mainly driven by automotive segment, leveraging on SST exemption measures. We have excluded net EIs of -RM0.9m in 1QFY21, with the gain from reversal of impairments and asset disposal was offset by the forex loss and derivative loss.

Dividend. None.

QoQ. Adjusted for quarterly distribution for Perpetual Sukuk, UMW core PATMI declined 29.9% QoQ, mainly attributed to lower contribution from automotive segment with overall group car sales volume dropped 22.7% due to accelerated deliveries by end of 4QFY20 and lack of starting inventory and supply constraints in 1QFY21.

YoY. Reverted to core earnings of RM80.7m (from loss of -RM19.5m in 1QFY20), due to combinations of stronger accelerated car sales during SST exemption period in 1QFY21, on-going cost cutting measures and low base effect in 1QFY20 being affected by Covid-19 and implementation of strict MCO1.0.

Automotive. Management remains confidence of the strong automotive performance in FY21 with indicative outstanding orders of 20k units for Toyota (implied up to 3 months waiting period) and 70k units for Perodua (implied 3.0-3.5 months waiting period). The industry has started approaching the government to further extend the SST exemption to 31 Dec 2021. The group is set to achieve sales target of 302k units for 2021 (62k units for Toyota and 240k units for Perodua).

Equipment. The segment has been affected by the on-going Myanmar political crisis. Management is expanding its product range and services, leveraging onto the recovery program and infrastructure spending in other countries.

M&E. Automotive parts will leverage on the recovery of local car production volume, for earnings sustainability. Kayaba will tap onto its +15% capacity expansion in Nov 2020 to meet strong automotive demand while lubricant business is planning for a 70% capacity expansion by end 2022. On the other hand, Aerospace manufacturing is expected to face further slowdown in 2021 and only expected to fully recover in 2023.

Group. Management has revealed a new framework CREST@2021, targeting to achieve Revenue RM20bn, PBT RM2bn and PATMI RM1bn by latest 2030. The growth will be driven by organic growth of existing businesses and M&A initiatives.

Forecast. Adjusted earnings for FY21-22 by -3.7% and +4.5% respectively after incorporating information from Annual Report. Introduce FY23 earnings at RM408m.

Maintain BUY, TP: RM3.58. Maintain BUY with higher TP: RM3.58 (from RM3.45), based on unchanged discount of 10% to SOP of RM3.96 (from RM3.83) post earnings adjustments. UMW will continue to leverage onto the strong automotive sales in 2021 driven by SST exemption, attractive new models and economic recovery (driven by stimulus plan and vaccination program).

Source: Hong Leong Investment Bank Research - 25 May 2021